Decision

Charity Inquiry: Believe in Magic

Published 10 September 2020

This decision was withdrawn on 12 October 2022

This Inquiry report has been archived as it is over 2 years old.

Applies to England and Wales

The charity

Believe in Magic (“the charity”) was registered with the Charity Commission (“the Commission”) on 20 January 2012. The charity’s governing document is a Constitution which was adopted on 18 January 2012. The charity’s entry can be found on the register of charities (“the register”).

The charity’s objects were to relieve the needs of children and young people up to the age of 18 in the UK suffering from serious or terminal illness and their family and carers as the trustees shall determine.

The charity had four registered trustees. Three of the trustees were appointed in November 2011. The fourth trustee was appointed in January 2017, but passed away during the inquiry.

Issues under Investigation

Before the statutory inquiry was opened the charity was subject of a Commission compliance case (“the investigation”). Much of the charity’s funds were generated through online funding platforms and the investigation was opened due to concerns in respect of, potential private benefit by trustees or connected parties and the late submission of the charity’s accounts.

The investigation arranged to visit the charity to examine its books and records and to discuss the regulatory concerns raised. However, none of the trustees made themselves available to attend the meeting. On 7 February 2017, a statutory inquiry (“the inquiry”) was opened under section 46 of the Charities Act 2011 (“the Act”) to:

• examine the trustees’ non-compliance with their reporting duties, specifically the non-submission of the charity’s annual accounts and reports
• consider whether, and to what extent, the charity was operating in furtherance of its charitable objects and for the public benefit
• examine the administration, governance and management of the charity by the trustees, in particular the extent to which the trustees had:
  • acted in the charity’s best interests and acted in accordance with their legal duties
  • responsibly managed the charity’s resources and financial affairs
  • ensured that conflicts of interest in the charity have been adequately avoided or managed.
  • the extent of benefits to trustees and connected persons and whether these have been properly authorised

Findings

Examine the trustees’ non-compliance with their reporting duties, specifically the non-submission of the charity’s annual accounts and reports

The duty to file accounts with the Commission applies to all registered charities whose gross income exceeds £25,000 per year. The inquiry found that trustees failed to comply with their statutory filing duty because:

• the charity’s accounts for the financial year ending (“FYE”) 4 November 2014 were submitted 60 days late and its annual return for the same period was submitted 49 days late
• analysis of the banking information revealed the charity’s income was £445,367 and expenditure was £393,907 for the FYE 4 November 2015. However, the inquiry found the charity had not filed accounts for this period. In March 2017 the trustees were asked to explain why these accounts had not been submitted and to confirm who was independently examining them. When the accounts were submitted, 215 days late, they had not been independently examined as required by financial regulations
• the annual return for the FYE 4 November 2016 has not been submitted

The inquiry found the trustees collective failure to comply with statutory filing requirements was misconduct and/or mismanagement by the trustees in the administration of the charity. It is also a criminal offence.

Consider whether, and to what extent, the charity is operating in furtherance of its charitable objects and for the public benefit

Trustees are expected to co-operate with statutory inquiries and comply with the Commission’s directions to provide information.

The inquiry found that a collective failure by the trustees to fully cooperate and engage with the inquiry prevented a full and timely investigation of whether, and to what extent, the charity was operating in furtherance of its charitable objects and for the public benefit.

Although the inquiry acknowledged one of the trustees was very unwell and another trustee had caring responsibilities, there were four trustees. Accordingly, it was reasonable for the inquiry to expect the trustees to work together or individually in order to provide charity information, they would be expected to hold, within reasonable deadlines.

The trustees failed to fully comply with a section 47 direction to provide information, which included updated contact details for two trustees, who despite numerous efforts, the inquiry has never been able to contact. The inquiry required to meet with the trustees, but of the four registered trustees, only the unwell trustee and the trustee with caring responsibilities attended the meeting.

The two trustees who attended the meeting declined to provide the contact details of the other two trustees. They said this was because they feared this would expose them to abuse from individuals who were complaining about the charity.

The inquiry found the trustees’ collective failure to fully cooperate and engage with the inquiry amounted to misconduct and/or mismanagement by the trustees in the administration of the Charity.

Examine the administration, governance and management of the charity by the trustees

Trustees are under a legal duty to protect and manage the charity’s assets. There should be a clear audit trail of how funds have been expended and appropriate financial controls to reduce risk, such as preventing any single person from having sole control of substantial charity funds.

The inquiry found the trustees failed to responsibly manage the charity’s resources and financial affairs. However, due to a lack of clear and complete information from the trustees, the inquiry found it difficult to determine the extent of any benefit to them and connected persons and/or whether conflicts of interest had been properly managed.

The inquiry found that the four trustees were closely related and three of them appeared on the charity’s bank account mandate. However, the trustees had elected that only one signature was required to use unlimited charity funds.

The inquiry found that, from December 2015 to May 2016, £108,786 had been electronically transferred to accounts in the name of a trustee and there had been cash withdrawals totalling £133,000 in the FYE 4 November 2015 and £156,000 in the FYE 4 November 2016.

The trustees told the inquiry they needed to use cash because the charity had not been able to obtain a debit card for the type of bank account it held. However, because cash payments were not always accepted, they sometimes needed to pay funds into personal accounts so the bank cards on those accounts could be used for charity business.

Due to the frequency of the cash withdrawals, the inquiry asked the trustees to provide receipts to justify a sample of the withdrawals and electronic payments. The trustees provided receipts and information that revealed considerable spending within the objects of the charity. However, the receipts provided only supported £234,042 of the £381,838 sample they had been asked about.

The inquiry found the large cash withdrawals, mixing charity funds with personal funds and poor record keeping in respect of this made it impossible to establish whether all of the cash withdrawn and/or transferred had been used within the charity’s objects.

The Commission does not investigate crime and does not have prosecuting powers. The unexplained expenditure of charity funds was reported to the police, who undertook a criminal investigation but, due to insufficient evidence, did not proceed further.

The Commission considered if it would be appropriate to undertake restitution on behalf of the charity to recover the lost funds. However, after assessing the strengths of a claim and the economic prospects of recovery, it was not considered appropriate to proceed.

Conclusions

The Commission concluded that, due to the charity’s income, the trustees should have submitted accounts and/or annual returns and these documents should have been submitted on time. The trustees’ failure to do so was misconduct and/or mismanagement in the administration of the charity.

The Commission concluded that the trustees’ collective failure to fully cooperate and engage with the inquiry and comply with formal directions amounted to misconduct and/or mismanagement in the administration of the charity. The Commission concluded that, although evidence of charitable work and expenditure was provided, the lack of clear and complete information made available in respect of the trustees’ use of large amounts of cash and transfers of charity funds to personal accounts was a failure to responsibly manage the charity’s resources and financial affairs. This amounted to misconduct and/or mismanagement in the administration of the charity.

The Commission concluded that due to the lack of clear and complete information made available by the trustees it was impossible to determine if they and/or connected parties had inappropriately benefitted from the charity and if any conflicts of interest had been properly managed.

Regulatory Action Taken

The inquiry froze the charity’s bank account by making an order under section 76(3)(d) of the Act.

The inquiry directed the trustees to cease fundraising by making an order under section 84 of the Act.

The inquiry served Orders and Directions under section 52 and section 47 of the Act to banks, other organisations and the trustees to obtain information.

The inquiry shared information with the police, to support their investigation, through the statutory gateway under sections 54 to 56 of the Act.

The inquiry removed the two trustees who did not engage with the inquiry from the Register of Charities by making an order under section 80 of the Act.

The inquiry found there had been misconduct and/or mismanagement in the administration of the charity, the charity was no longer operating and it was expedient and in the public interest to dissolve it. Therefore, the inquiry served an Order under section 84B requiring the remaining trustee to wind up the charity and transfer any remaining property to a charity with the same purposes.

The Commission authorised the transfer of the charity’s remaining funds to the Round Table Children’s Wish, charity number 1060225, on 6 March 2020.

The inquiry received a voluntary undertaking from the remaining trustee on 25 April 2020 not to be a trustee and/or hold an office or employment with a senior management function in any charity in England and Wales for a period of five years.

The inquiry removed the charity from the Register of Charities on 17 August 2020, under section 34(1)(b) on the basis it ceased to exist.

Issues for the wider sector

Trustees must ensure that their charity has adequate financial controls in place. It is important that the financial activities of charities are properly recorded, and their financial governance is transparent. Charities are accountable to their donors, beneficiaries and the public. Donors to charity are entitled to have confidence that their money is going to legitimate causes and reaches the places that it is intended to, this is key to ensuring public trust and confidence in charities. In this case there was no clear audit trail of cash donations from donor to bank, or to expenditure.

All charities must have an effective trustee body to control and administer the charity in accordance with a charity’s own governing document, charity law and Commission guidance. Public trust and confidence depends on the conduct of trustees and how they safeguard charity funds and undertake the objects and activities of the charity.

Conflicts of interest are more likely when there are only a small number of trustees on the board, when trustees are closely related, or when the charity has dealings with organisations in which the trustees have interests. It is vital that trustees avoid becoming involved in situations in which their personal interests may be seen to conflict with their duties as trustees. The trustees should put in place policies and procedures to identify and manage such conflict.